The Remaking of Benami Transaction Act, 1988

In order to curb the accumulation of black money in the country, Modi Government has taken a historic step by demonetizing the higher currency notes from the circulation. It is not the only step which has been taken by the Government in this regard, as Benami Transaction Amendment Act, 2016 has also been passed with effect from 1^st November in order to cut the flow of black money from real estate market. The dual move taken by the Government was only to make sure that the money should be in circulation and illegalize all form of cash accumulation.In this thought process, I am not going to discuss the demonetization issue, but it is actually the ‘Benami property’ which will become the centerpiece of the paper.

The Benami transaction Act was introduced in the year 1988 by an ordinance which was later repealed through the Benami Transactions (Prohibition) Act, 1988. The purpose of bringing such an act was to curb the Benami transactions and matters related thereto.  The act was criticized for the half-hearted effort as it did not provide for the specific provisions in regard to the confiscation of property or an appellate authority or the procedure in regards to the serving of notice etc. and all these shortcomings made the entire act toothless and adjunct to act against the perpetrators. In order to act against the Benami transactions, the government had brought an amendment bill in the year 2011 but it was lapsed due to the dissolution of the house in 2012.Later, fromThe Benami Transactions (Prohibition) Amendment Act, 2016 was passed by both the houses of the parliament and came into effect from 1^st November, 2016. It is quite interesting to note that the parent act of 1988 had only 9 sections whereas the amendment act has 71 sections which is actually 8 times more than the previous act.

The new amendment act was passed in order to curb the infirmities in the act but the most pertinent things are the appointment of Executing Authority, definition of Benami Property/Transaction, and the confiscation of the property. The 2016 act has defined ‘Benami property’ as any property which is the subject matter of a Benami transaction and also includes the proceeds from such property. Benami Transaction has been defined under Section 2(9) which defines it as “A transaction or an arrangement (a) where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and (b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, OR a transaction or an arrangement in respect of a property carried out or made in a fictitious name; OR a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership OR a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious.

Under the 1988 act, the property bought for the benefit of wife or unmarried daughter cannot fall under the purview of the act, but under the 2016 Amendment act, the additional clauses have been made in order to enlarge the scope of the definition. The act has exempted the properties which are held in fiduciary capacity or by HUF or for the benefit of spouse/children or for the lineal ascendants or descendants. The class of exemption provided under the act is very wide enough to include almost everyone in the definition and it looks like government is trying legalize the hoarding of Black Money in the market by exempting a majority of population from its ambit.The counter argument to this is that since the property can only be acquired from the known source of Income and therefore even if the definition has been enlarged, it will not legitimize the hoarding of black money as ultimately that person has to justify as to where he gets the liquidity to purchase that property.

The second part is about the regularity mechanism which specifically deals with the Benami Transactions/Property, which was clearly absent in the parent act of 1988. Under the Amendment Act, four authorities have been mentioned as Initiating officer, Approving Authority, Administrator and Adjudicating Authority so as to take proper steps against the impugned property.Different roles have been specified to all the authorities and after the decision of the adjudicating authority, the decision will be binding and confiscation proceedings will be proceeded thereafter.

The following procedure is proposed for determination and related penal consequences in the case of a prohibited Benami transaction:-

1. Proceedings for enquiring into an alleged Benami transaction are to be initiated by the Initiating Officer;
2. The Initiating Officer will refer the case to the Adjudicating Authority set up under the proposed Bill;
3. The Adjudicating Authority, after providing an opportunity of being heard to the alleged Benamidar, the beneficial owner, any interested party including a banking company and any other person who makes a claim in respect of the property, will pass an order within one year, holding the property to be a Benami property or otherwise;
4. An appeal against the order of Adjudicating Authority will lie with the Appellate Tribunal set up under the proposed Bill;
5. An appeal against the orders of the Appellate Tribunal shall lie with the jurisdictional High Court;
6. After the order of adjudicating authority becomes final, it shall confiscate the properties held Benami;
7. Confiscated properties are to be managed and disposed of by officers of the rank of Income-tax Officer who will be designated by the Central Government as Administrators.

Thirdly, the provisions of S.24 require that the Initiating Officer will initiate proceedings under the Act by issuing a notice to the person who is believed to be the benamidar and serving a copy thereof on the beneficial owner. The Initiating officer can also provisionally confiscate the property for a period of 90 days, if the officer thinks that the benamidar may try to dispose of the property.After the proceedings initiated by the initiating officer, the adjudicatory authority will give the opportunity to the concerned and will hear their side, if authority is not satisfied then it will pass an order for the confiscation under Section 27 of the Act otherwise they will release the property. If the benamidar is aggrieved by the order of the adjudicating authority, he or she can appeal before the appellate authority established under the act. It is pertinent to note that even the initiating officer can challenge the order of the adjudicating authority before the appellate authority within 45 days from the date of order.

All in all, the steps taken by the Government are quite bold and decisive but they are not meant to tackle the hoarding of the Black Money in the country. I am not sure about the Demonetization move but the Amendment could be made much stronger. If we see the amendment act in a subjective way, it has led to legalize the black money in the real estate sector if a person is able to prove the ‘known source of income’ which can be done quite easily with the help of a reputed Chartered Accountant. Secondly, giving a free hand to the initiating officer with regard to the initiation of the proceeding without giving a chance to other party is quite arbitrary. The Act is silent as how the initiating officer will receive the officer and what steps he or she has to take after they receive the information? Thirdly, property will be confiscated by the order of the adjudicating authority under Section 27 of the Act but is it not against the principle that ‘one is considered innocent unless proven guilty’ because of the fact that there are three appeals left to the Benamidar while proven guilty by the adjudicating authority. Fourthly, whether it would be feasible to suggest for a separate appellate authority wherein there are more than half the courts vacant? Lastly, whether this Act would have a retrospective operation from the date of the parent act i.e. 1988 or it will apply prospectively? Because if it is going to apply prospectively, then what about the acts done between 1988 to 2016 and if it applies retrospectively, then this very amendment would violate the settled principles of law. I am not sure whether this act will achieve the desired results but atleast this government is trying to do something against black money in the country.